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STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

9 Months Ended

Sep. 26, 2020

Equity [Abstract]

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

7. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Restricted Stock Awards

In May of 2020, the Company adopted a 2020 Equity Incentive Plan (“2020 Equity Plan”) which authorizes the issuance of shares of common stock to employees, non-employees, and the Board. The 2020 Equity Plan was a successor to the Company’s 2010 Equity Incentive Plan (“2010 Equity Plan”). The number of shares authorized to be issued under the 2020 Equity Plan is four million shares plus shares of the common stock underlying any outstanding award granted under the 2010 Equity Plan that expires, or is terminated, surrendered or forfeited for any reason without issuance of such shares.

Registered sale of equity securities

On March 15, 2019 and April 10, 2019, the Company sold 7.3 million shares and 0.7 million shares, respectively, of registered common stock for aggregate gross proceeds of $8.8 million ($1.10 per share), before deducting underwriting discounts and offering expenses paid by the Company of $0.7 million. The March 15, 2019 and April 10, 2019 transactions represent approximately 8.9% and 0.8%, respectively, of the Company’s total outstanding shares of common stock as of the date of sale. The net proceeds from the offering were used for general corporate purposes, including working capital.

Non-Vested Restricted Common Stock

The fair value of non-vested restricted common stock awards is generally the market value of the Company’s common stock on the date of grant. The non-vested restricted common stock awards require the employee to fulfill certain obligations, including remaining employed by the Company for one, two or four years (the vesting period) and in certain cases also require meeting either performance criteria or the Company’s stock achieving a certain price. For non-vested restricted common stock awards that solely require the recipient to remain employed with the Company, the stock compensation expense is amortized over the anticipated service period. For non-vested restricted common stock awards that require the achievement of performance criteria, the Company reviews the probability of achieving the performance goals on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for the performance goal is amortized over the anticipated service period. If the performance criteria are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed.

Restricted stock activity was as follows:

						Weighted Average
		Shares				Grant Fair Value
Balance, December 28, 2019			1,863,124			$	1.60
Granted			628,000				0.54
Forfeited			(34,500)				2.32
Vested			(60,000)				1.12
Balance, September 26, 2020			2,396,624			$	1.32

On December 31, 2017, the Company amended the employment agreement with our CEO, Dr. John Fan, to expire on December 31, 2020 and as part of the amendment issued restricted stock grants. Of the restricted stock grants issued to Dr. Fan, 640,000 shares will vest upon the first 20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price equal to or greater than $5.25, 150,000 shares will vest at the end of the first 20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $6.00, and 150,000 shares will vest at the end of the first 20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per share equal to or greater than $7.00. All of the grants are subject to certain acceleration events and expire on December 31, 2020. The total fair value of these awards on December 31, 2017 was $1.7 million. The value of restricted stock grants that vest based on market conditions is computed on the date of grant using the Monte Carlo model with the following assumptions:

		For the three months ended September 26, 2020
Performance price target		$	5.25			$	6.00			$	7.00
Expected volatility			48.3%				48.3%				48.3%
Interest rate			1.97%				1.97%				1.97%
Expected Life (years)			3				3				3
Dividend yield			—%				—%				—%

Stock-Based Compensation

The following table summarizes stock-based compensation expense within each of the categories below as it relates to non-vested restricted common stock awards for the three and nine months ended September 26, 2020 and September 28, 2019 (no tax benefits were recognized):

		Three Months Ended								Nine Months Ended
		September 26, 2020				September 28, 2019				September 26, 2020				September 28, 2019
Cost of product revenues		$	40,620			$	18,309			$	70,866			$	82,524
Research and development			81,133				73,939				193,788				262,454
Selling, general and administrative			196,855				359,435				374,096				1,461,021
Total		$	318,608			$	451,683			$	638,750			$	1,805,999

Unrecognized compensation expense for non-vested restricted common stock as of September 26, 2020 totaled $0.6 million and is expected to be recognized over a weighted average period of approximately two years.